Other immigrants. But we did not take account of it and youre right. The data dont tell us. I am dr. Caroline a physician and Health Policy analyst. Did you look at what seems to be the financial in the economy what stieglitz distinguishes between people that make the pie bigger and just take a larger part of the pipe, equity, capital where they come in and make the company more efficient by the staff and then they dont take that money and invested into another business to do the same thing so the money doesnt go to new companies producing new things and offering new jobs. It just goes to the reverse mortgages. We avoided a lot of the issues that you raised, however, by looking at ed and rather than average income. So a further to average, than the fact you have these enormous gains at the top of the average. And so, thats why we choose the median. So we wash out some of that. Is that an independent fact your ensuring to explain whats happening to the economy, that job creation in wages and salaries, however you measure it. This just happened to be too neat the perfect way to measure for the best available. But all he can say is there are economists who think that it is a significant independent factor. And you know, weve seen the share of National Income claimed by finance double. It came out of somewhere. So now, there were a lot of arguments about the value that they were producing. There are lesser arguments at the decreases because now we have not only the value that they produce, which i think, you know, we have the best system of financing for newbies is, for new businesses in the world. We do better at. Theres a lot of reese. You know, on the b. C. Funding the so on. But now we also have the cost to consider. And you know, the cost of the financial crisis were enormous. You made the point in criticizing the Bush Administration for not recognizing the problem sooner, calling the advisories and yet in terms of prescription for policy change, the only two things ive heard from you or one can make in public free and available. And two, opening at Community Colleges for free training. Certainly in the form of that was a major fiscal policy change and would take decades at best for free public i think you could do it very quickly. In fact, i proposed it to president clinton in 1995. There is states that these programs. A couple of states have it. It was really modeled on the hope scholarship georgia, where anybody with any High School Graduate with the average in georgia could go to any church or university for free. I said lets make that a national program. But youre right. Im thinking of longterm responses. Shortterm responses look, i think the president has given a number that he wished bush could done, which were you recognize you have a particular problem, a new problem with creating jobs. It used to be if the economy grew at a certain rate, we were a childs machine. In the 70s and 80s and 90s come you didnt have to do anything in particular to get businesses to create jobs. For some reason, that stopped. That fell sharply. The relationship between how this economy grows and how many job business has created changed by about 50 . Very sharp coming discontinuous change. You dont see that often in economics. So thats the problem. So you say okay, what do we do to create jobs . You know, one of the things i said to this administration at the job summit in 2009, i said reduce the cost of business of creating new jobs. The create more of them. The best way to do that is reduce the employer side of the payroll tax. For new job hires. In fact, they did go to a version of that. But thats an example. The president has other proposals for coming you know, credits for particular kinds of businesses to create jobs, a new deduction of salary costs for new hires, for increases in pay. You know, i dont know that the particular designs of these policies from my atari deal. I do know thats thinking about the problem and saying hey, weve got a real problem which ive creation. The economy on its own is not doing this for some reason. We will eventually figure out the underlying reason. In the meantime, how do we stimulate it . Look, theyre rather at the job summit i had a discussion with alan lander, an old friend of mine. He had a different approach. He said public jobs, public works. 1930s. I dont think were there yet. I dont think we could ever do it. But we certainly could can justify it and indeed there is a demand for an increased investment in infrastructure across the country are. And they create jobs and thats part of the president s jobs will, jobs for postal. How does that affect the left of the job market that has to do with construction . Its not just construction, but in the short term it only affects people involved in the planning and construction of highways and airports, brought to, et cetera. Thats not on the construction workers. Their design people in the Service People of all kinds. But is there, you know, do we have, you know, theres no silver bullet. What im saying is you can begin to think about this in lots of different ways and say lets try a range of ways and see what works because we got this persistent, real, structural problem. This is coming you know, part of my argument and as is whats happening. This is not simply about the financial crisis in the slow recovery that typically follows the financial crisis. This is about a larger structural change in the economy for which we have hard evidence from the last decade. And so, this is not simply a matter of an emerging the respawn. We need something more serious. Thats why were talking about the longerterm thing. The shorter term things, which didnt try any of this. And how they got away with it and the 2004 election, you know, at this point in the 2004 election, the Bush Administration had created less than 2 million jobs. Weve created over 5 million jobs. And you know i dont know how they got away with it, but they did. Karl rove in the seat i guess. The National Association [inaudible] [inaudible] i would be spending 10 of gdp on education. In my view, i think history tells us that thats the level, which the best performing economies in the world typically were now at about eight. We used to be at 10 and we are now at about eight. Korea, the single most successful economy of the last 50 years is that 10 and has been at 10 cents that was a poor country. And to me, thats what i would do. And so, all im saying is that we start with the public system. I think that the government should do, but in my view, i would also provide assistance to vary income dependent assistance to president editions as well. [inaudible] [inaudible] [inaudible] well, look, its the markets have produced the growing inequality. These are inequalities pretax income. The posttax income is a little less unequal, but the truth is, you know, we provide lots of tax benefits for people in the top two as well. So were certainly not doing anything to counter it, to counter what the market is producing. For some reason, and its got to be changes in the market and the conditions under which it operates, you know, the market was producing broad income gains for leslie h. Did not stop doing that. The policy responses look, there were policy response at high Government Spending and very accommodative monetary the, those are policies in response to the particular problems that have arisen from the financial crisis and the recession that followed. I actually believe that the constituents for a stronger, much stronger expansion are in place today and that for the First Time Since the crisis, and it a little push because the psychology, people dont believe it. For example, we had five years of deadly falling housing prices. In very high foreclosure rates, the house is the virtually only asset that about half of americans had. Fiona has enough said they filed by about 35 over five years. Well, that is what economists trust that the call negative about the fact, which is to say you get poorer and you respond in some way. You respond by paying down your debt because you feel poor. The fact is, housing prices have stabilized and are beginning to move up. And so, we are moving past the negative wealth effect into that these appositive wealth effect. People dont yet believe it, or they dont feel confident about it because theyve lived through five years of declining wealth in their homes. And so, itll take a little while for that to settle in and people to begin to respond to that by saying hey, i can afford to spend more than i thought i could. Consumer spending has been the big problem in the recovery. This disinvestment follows from that. So i think those pieces are in place. And i think you retreat is an attempt to kind of give it a push, frankly. But you know, government is not so good at giving that push. [inaudible] [inaudible] [inaudible] well, depends on the advanced economy are talking about. You know, you look at the 90s, for example, in japan performed very badly, japan continued to perform badly into the last decade a couple years exceptions. So they didnt have a lot of the gains we had. France looks a lot more like the United States, frankly. The western hat name in the last decade is also true you do see it. I havent done this kind of analysis because as data arent available to me for other countries. But all the normal indicators of how well those economies are performing say that theyve been underperforming in much the same way the United States has been underperforming for the last decade, which it can lends credence to the notion that the this is about is globalization and Information Technology in the ship and the relative value of intangible assets is tangible assets. Isnt the real point of difference in the health care you are making quick there is a big difference in health care. Youre right. [inaudible] mind this kind of twopronged twopronged [inaudible] [inaudible] [inaudible] well, on the question of womens earnings, yes, the fact that women are the primary caretakers of children in society as compared to their husbands and a lot of women with children dont have husbands, is certainly a factor. And i felt the biggest factor here was a greater proportion of parttime work rather than fulltime work. Now, you know, thats in part of our childcare policies. It tells us that might be a very good investment would be to expand public support for childcare, which you could do lots of different ways by increasing public support for the childcare expenses, the businesses tears part of benefits for their workers. So yes, i think that the parttime issue is large. I think the choice of professions i think is a big issue. And in outcome you just think of maybe this will change, but you know, you go to, you know, google or facebook or microsoft and the preponderance of the show workers they are men. There are a lot of women, but this is still a profession that meant feel more calm to berlin and women for whatever end. I dont know if thats because thats how Computer Science is conducted in universities, or you know, i think its all social and not physical. But on the other Financial Literacy well, we didnt address that to your because were only looking at earnings and not income from financial assets. We purposely made that decision to focus on earnings. As it is, thats an issue for the top 20 of the country. 93 of the value of all financial bets, and that includes pensions and retirement accounts and savings accounts in stocks and bonds, all financial assets, which is to say every asset of the economy except comps and origin gold or whatever. Our budget held the top 20 of the country. The bottom 80 control 7 of the value of all financial assets. So, but Financial Literacy in the top 20 i think probably does have an effect on the ultimate income a, would it be a good thing to have greater Financial Literacy across the Income Distribution . Absolutely. And he would be even better if we could figure out a way, and there are lots of ways to do it, for average people to accumulate assets other than their own homes. Thank you were a very stimulating presentation. Id love to hear more. [applause] would you support military action in iran . If need be, yes as a last option, yes. Under what conditions click if sanctions dont work, if they are close to and about to have the ability to develop a nuclear bomb, we use every option possible as will israel and that would be the last option would have to use, but we do have it ready to use. I think we stand with israel and to let iran develop a nuclear weapon. Military option should be on the table. Under what conditions would you recommend . I cant tell you what that would be, but we better exhaust Everything Else. At the end of the day, if that is what is needed, i dont know what they need maybe i can wash windshields, but ill be the first volunteer. Were going to have a discussion about what is needed. Former white house budget your jim nussle said everything should be on the table in dealing with the socalled fiscal cliff. Mr. Nussle is under consideration as an omb director of the white house. This is just over an hour. Thank you, john and thank you to everybody for being here. We come here today at a rather auspicious moment, on the brink of the president ial election, the results of which are still very much in the air, with the looming budget sequester that everybodys idea of a great time any potential tumble over the fiscal cliff at the same time. So it all adds up to quite an interesting set of circumstances and a lot of the uncertainties that will happen. What will be the guest this morning that will tell us exactly whats going to happen. He is jim nussle and for 16 years he represented iowa in the house of representatives where he earned an effective leader and fiscal hawk. He served in agriculture and banking committees and became an expert on such issues as taxes, finance, world trade, health care to energy. Some 2001 to 2007, and mussels served as chairman of the house budget committee. There he was successful interaction shepherding sixth of akita budgets to congress, which in this day and age is some kind of accomplishment. And from there, jim took an even more fun job moving to become too rector of the office of management and budget under president george w. Bush. Kerry led the development and management and implementation of the president s fiscal agenda. Currently, chinas president and ceo of growth energy, trade association made up at them all countries industry partners. Last week, Government Executive National Journal was about to names being discussed in the republican circle as omb dirt in the romney administration. Although they will come its unclear if nasa would return to omb. Maybe he can clarify that for us. A little bit about the ground rules. This is about you and your question, so were going to get right to them. Its your opportunity to ask whatever questions you want of a man whos really an expert on the budget process and the current situation. Im here to facilitate things. I think i have an easier time of it than the moderators at the president ial debate had, but well see. When the interrupt you sorry. So, id like everybody now, if you have questions, we have people stationed with microphones around the room. So just give an indication in the dtp before that, it will exercise the moderators privilege to ask the opening question. And that i cant resist just going straight to top a, which is the sequester, the fiscal cliff, the great deal of uncertainty. President obama said at the sequester that it will not happen. But at the same time can be certain to veto legislation thats not to his liking, relative to the broader fiscal picture. What you think is going to happen in the next few weeks . Will first come the thank you for inviting me into the government executive Meeting Group in the hospitality and pwc for hosting. It is a fun event, particularly to have the opportunity to come back and speak with so many important Public Servant to the success of whatever happens next. As we all know, it is one thing to take a vote in congress would like to think were in charge of everything. I remember that very distinctly. But we know theres good people that have to come and implement the decision, whether its by the president or by the congress and hopefully jointly. And thats all of you, sit thank you for your service. There were a couple of people who had i. Guess the audacity to come up and tell me they are either current or former omb years. Im sorry for that. I wont identify you to the rest of the folks in the room because i know how dangerous this situation can be. Whats about to happen . Nobody knows. Truly, nobody knows. I have listened to the talking heads. Ive been part of different discussion groups. An part of an Organization Called the committee for responsible federal budget, which a number of us has been brassard of an organization to help guide people with ideas and decisions in a bipartisan way. Im also now part of a group called fixit that, which Just Launched a letter from a number years from fortune 500pound denise come to see and do something to fix the debt because the situation is unsustainable. The reason im involved in that is because i know policymakers are the ones that are going to make the decisions, its not going to be me anymore. They need help. They need support, help, they need ideas. They need creativity at this time and then you come back to in order to make this next decision because theres absolutely nothing easy about where were about to head. None of the decisions are easy. Politically, not that marries the fiscally. None of them are going to be anything but destructive comet. It is the situation we found ourselves than it is a bipartisan reason why we are here and its going to take a bipartisan pollution in my judgment to get us out of it. The fiscal cliff. Obviously, quite as chairman bernanke about what is evidently about to happen at the end of the year. When he made that statement, he said it was basically involved at that time three things, but then evolved into four and now its back to three. Now its actually back to two. It originally started with these four, sequestration, exploration of the bush tax cuts. It evolved into what may have been exploration of a continuing resolution for the budget and not in terms. And it was the debt ceiling. All four of those things couldve happened about the first of the year. Ben bernanke made that statement, thats about one of us are going to happen. As we all know, it has taken us to the end of march condominium that there has been some relief if he wrote to the issue of whether or not there is going to be a Government Shutdown for some new decision that has to be made prior to whoever is elected president in the next few weeks so thats number one. Number two, according to the people who have a crystal ball that works, and my investment, suggests that the exploration of the authority under the debt ceiling may expire at any time between february, march, and depending on other countermeasures the treasury has at its disposal in its fiscal toolbox to play with that extension slightly as it did as we saw in august last august. It could be extended further, but the bottom line is that is no longer part of the january 1 day. The third thing is though that all of you know, and is a dirty secret that most people out side this term dont know is that sequestration, while ruff concerned about it, doesnt necessarily happen on january 1st. People are suggesting the cuts will occur and its almost like wiley coyote v. You go over the cliff and down for a poof of smoke. That is exactly what this may look like, meaning our behalf the ability to apportion the sequestration cuts over a period of time. And as a result, its not necessarily cliff. In fact, it is not dominican and his occur right away at all. So there is again some leeway, if he will, or is flexibility. And the fourth one is exploration of the tax cut. There is cheerful agreement and disagreement, the cheerful agreement on both ends of the spectrum. One suggesting on the republican side, and maybe to go ahead and let this happen because we can blame obama and the other side saying, go ahead and let this happen because we should be taxing the wealthy anyways. So you have this situation occurring, with the fiscal cliff a few on january 1st may not be a cliff at home and beat, might have been without the next day there be in a puff of smoke at the bottom of the canyon. Now, i want to make two caveats to that. Number one, i believe that 62 of debt to gdp, our country is on an unsustainable path we should use this opportunity to fix the debt and fix a situation wherein. The congress and president made that stops and thinks to occur to force it on and this is a pretty good one. The second is that follow since the marketplace is status quo and that the markets, wall street, main Street Investments initially the dollars sitting on the sideline right now and im obligated capital doesnt do anything. It doesnt move. It doesnt get disappointed with the onset of the fiscal cliff, socalled, or the lack of response or decision by the administration and congress. So this assumes that the market ready mushes is yeah, what kind of take this anymore can watch and see what happens for maybe a quarter or two or three or who knows. And as tom pointed out, all of this has not even factored in who won the election, who won the senate come is the result . We were talking about this before him. To even know what the results of the election is on november 6th or 7th . You know, it could linger, god forbid, but a potential nonetheless, not only for the president , but also the senate the way it did in minnesota this last go around. So thats kind of aesthetic a few you will, tom. If youve noticed i learned something in my 20 years. I can figure out a way to say a whole lot of stuff and not answer his question. That is nobody knows whats about to happen. I cant give you a prediction. A i windowless congress rarely does anything without a firm backstop. And when i say backstop, i mean an action forcing event. If this is not an action forcing event, congress and politicians in washington will try to figure out a way to let this go longer while they figure out where they stand number one. And number two, typically we go past the prices before the action occurs. We saw that the last time there was the debt ceiling. As a quick setup and maybe doubles are some comments or questions. Now that everything is completely cleared, im sure there are no questions. Nows the attempt to get to get right to them. So lets start us off right here. Wait until the microphone is coming. Wilson was xerox. Can you hear me . Please identify the components are referred to categorically as bush tax cut, but secondly, what do you think about a oneyear clean punch on the sequestration sequestration was the likelihood . All of thats been considered and the likelihood is direct proportion to other alternatives. On the one hand. And on the other hand, whether or not theres Critical Mass to take that alternative versus allowing cats to occur. In other words, and ill come to your first one in a moment, the sequestration was not meant to be a policy. For most, it is meant to be an action forcing event. So if thats true, it should force action and we should get a deal. So thats part of it. Now the president has said up until and i give him his due and the spokespeople they do what they want back to the president commented that its not going to happen. I think there is more a belief about what would occur, rather then he was going to do Something Different than what he argues that, what you say, this is going to happen if you dont come up with a deal. So i take him at his word when he says that, assuming israel but because theres a different scenario if romney as you like it. As far as whats in a package of exploration come youre exactly right. Amt is gigantic and obviously the tax cuts from 2001 and 2003 are all part of that. The talk or fax, you know, the cspan audience knows what that is, but nobody in manchester, iowa knows what that is except for my doctor. The only person who knows what that is and hes not sure he wants the doc fixed. He thinks the fix is in. But its basically about a 30 if im not mistaken at the new reimbursement levels for positions under the medicare program, which was again supposed to be an action forcing event to force reform of medicare by keeping providers at the table. Well now that its grown to a doc fixed with a 30 cut, which is deep as you can imagine for anyone taking medicare patient. Theres other expiring provisions. A smaller, if he will, tax provisions that expire at the end of the year, which have up until about 2006 or seven were routinely part of an extension a tax extension bill that generally received bipartisan and bicameral support and generally passed with flying colors, but became problematic probably in about seven, eight, nine, right or not and thats completely problematic as we saw last year. The very number of those other kinds of things that are kind of Holding Foreign until kind of the dollar weakened on the time of the time waiting on the dollar so to speak for a bigger decision of the tax policy at the extension on january 1. Good morning. About 1965, about two thirds of the Government Spending was discretionary are mandatory. As for plot. 62 now. Was the realistic outlook for a tacky and mandatory programs, but of course everybody counts on and just going in the wrong direction, that have no yeartoyear prep rations and decisionmaking . Welcome to the outlook is as problematic as it is almost always been. We have seen a lack of resolve to tackle the reforms that need to occur in those programs for now going on 30 years because the last attempt well, theres been a couple of successful attempts, but not many. The medicare of 1998 i believe was one. I was able to get one through in 2004 when i was budget chairman. And then you go back to the attacks the budget deal of 1990. And before that you go back to 1983 under social security. So theres been some examples, but very few and far between. My thought was the budget act and this is just me speaking. Im not speaking for anybody else. I got the beauty of the budget act of 1974, if it had any beauty at all, which again i smile because only it should want would even think theres any beauty in it at all, is that it put into a process of reconciliation, that suggested, i thought, i ink, that just like anybody like my wife and i and our tomato garden come youve got to go automate the garden every wants to pick the tomatoes are beautiful, but only if they get water and if you read the garden. The weeds are not from the pole and its hard work its hard work you need much rather go pick the tomatoes and eat them. But shes got to be the garden. Go through the program on a regular basis, routinely and look for ways to improve it, reformat, to rein in waste, fraud and abuse effects which are looking for, to improve the benefit in return on the investment to the people youre trying to serve. All of those kinds of things. And i thought, and i try to mess budget chairman chairman and failed, to make reconciliation and annual event and a failed because congress does not have the appetite politically to weed the garden. But if you dont pull the small we every year, they become big weeds like we find out, were taken over the garden, were now its impossible was very difficult. So when you say, is it possible . Im an optimist. Yes, its possible. So ive done it, but it also does its pretty darn hard based on my experience of watching these people come on both sides, dont get me wrong. One site talks about it, but they dont do it. The other side you could argue doesnt want to do it, but they talk about it. So thats i think the answer and i think thats where the action forcing event this year of the dead is possibly the final opportunity before we start heading on the road to decrease type situation. Over here. Thank you he gave evidence at the Environmental Protection agency. So you hinted that they would be a different outcome, a different process depending on the president ial election and it is tempting to ask you to speculate on how the difference would be. But instead, id like to ask if you could just talk a little bit about what she thinks of the core elements of any agreement . Good question. Thats a battery to ask the question because youre right. And ive had people say, well, you know, if obama wins, the next day he caused mitch mcconnell. Well, i mean, the president and the majority leader minority leader dont have a good relationship, so i doubt thats his first phone call. I dont care what the clip looks like, i doubt thats his first phone call. So what are the elements . To me, and again, im an optimist as i said, i think it has to have components we have now and that is a different and jan successful reduction on the discretionary side, recognizing theres been Enormous Growth hair and a number of programs and there still savings to find. I dont take us for a sense of them, nothing should be off the table, including defense. I am a proud republican and understand all of the fears and concerns we have around the world. But i also know theres a lot of waste in just about everybody at the pentagon to tell you that. So sorry send her in, everything should be on the table. Number two, entitlement is obvious. Do you take them one at a time, or to put them all together . I think there are some that are probably more challenging than others. Medicaid and medicare the two most obvious challenges because of the way their theyre unsustainable, independently on a Sustainable Growth rate and the fact that there are some options. Theyre not all good and theyre not easy, but they are at least options. Social security, the options are very few when it comes right down to it. Regardless of whether you should take them, theres very few. Reduce benefits, you change eligibility. I mean, what else do you have . There are very few. To that becomes a more politically challenging, regardless of whether its for people near retirement, which is that everybody tries to say. And last but not least, i think you have to remind mind in the commission sat on, which are cpu peterson commission, which was the issue to simpson bowles, were trying to become ideas about what to do and what you have on the table. Revenue has to increase. He didnt say taxes have to increase, but revenue. It can come in a lot of different ways. Growth in particular is the x factor. And i think tax reform is an obvious place that is cheerful bipartisan support right now. And the other is to set goals for our debt to gdp ratios that are declining over time and better targets that that can be mad with outofstate third failsafe, whether its more sequestration in our caps or whatever it might be, in order to try and keep us on the path toward that more Sustainable Growth to gdp level. I would say 60 is not only a worthwhile goal, but i do see a pretty difficult goal to get to, even at this point in time during the next 10 years. We are on a path right now. With 62 this year by 2012 and were heading towards the bottom 90 89point something debt to gdp ratio as a result of what cbo has suggested by 2022. Weve got to bend the curve back down the debt to gdp by increasing gdp and reducing the debt to gdp by not adding or digging the hole deeper. So those are some of the component that would look for. One other thing im sorry. Another alternative ive heard that i think is a good one is if you are going to punch, so to speak, or if youre going to try and provide yourself some breathing room, put down a down payment. So i dont like the lets just put a would be thin for a year, just pump the sound for one year, or even six months. If youre going to give breathing room, at least put down a down payment upfront so that when the market in particular and our trading partners and everyone else knows that we are serious about this affair. Is there any chance of a grand bargain on these issues in the near term as far as a lame duck . Share. In fact, its arguably easier to sense a grand bargain for a number of reasons. The way Congress Works these days, a grand bargain is more likely a scenario than the toiling in the vineyard version of this, were bubbles up from the committees and subcommittees. You dont see subcommittees readied legislation any more. You dont see committees considering bills very often and having markups. Or for that matter, voting on a bill and going to a public Conference Committee . Heaven forbid you do that public. Now the leaders get together in five or six people said a room with their staff and write about and its a big deal syndicate it to the floor by 11 00. They force everyone to go. And if you dont vote for this, were going to go off the cliff in the lake wylie coyote. That tends to be what happens these days. So its almost more likely that a scenario could develop around the leaders being leaders in coming up with this kind of a bargain at setting the framework for how to go forward, rather than seeing this bubble up. The only exception, and one thing i forgot to add. I would give, going back to my analogy of reading the card, you have got to force the budget process to work and be leaders about this by giving instructions to the committees of jurisdiction to do their work and to come up with policy alternatives because while the framework of a grand bargain can come from the leaders come up for this to be done right, it is to be named and we need to provide an leaders and people who work in these areas and has some expertise to come up with the right policy decisions and alternatives for all of us to consider. Thank you, department of agriculture. I was wondering, how much latitude to be in the United States have an incentive economic slowdown in western europe and in china and other parts of the show . Well, i am not an economist, but i did say at a Holiday Inn Express last night. [laughter] so im practicing without a license. Because of what happened to the euro over the last five or six years, it is clear we are the reserve currency currently. And for the foreseeable future, unless something new entries than comment that has given us some breathing room if you will. So we are the best of the worst if you could look at it that way. And theres other challenges around the globe to make that i think sustainable for some time. So we fortunately differ from greece or spain or italy or other countries that have had these challenges. We have a little bit of time. And you know come you hate to even say that because you dont want to let the pressure out because you almost need that pressure to have the action forcing event of a decision from our leaders to do this. Hopefully the election wont be the catalyst for that. And i say that regardless of who wins. I hope the election will be that the people will speak at same regardless of who won, do it, dont come back without a plan regardless of who is in the majority. So i think we have some time as a result. But its a great question. There were very few people who predict what happened in 2000 he come in september of 2008. We saw signs of a. There are now im sure a number of economists running around, saying yeah, i predicted this and i predicted that. If they did, they were given speech or interviews are talking to people in congress or whoever about catastrophe that is about to happen september 2008. So you dont always see it coming. Could we have that kind of event in the near future . Sure, why couldnt we . Theres all sorts of reasons why that could occur if she can unity of these today. However, hopefully the market is recognizing that we have some time, we need to do this in a concerted effort and considered absurd and will give the time enough time to the leaders do make that decision. But its a great question and i wish i had a better answer for you. But i know we are on an unsustainable path and just like you and your banker, when you are in debt as much as you are, so it will say hey wait a minute, were done. This doesnt work. When that happens, we will be an aside we may not recover from if that happens. Hi, my name is nico headed out with the executive office of the president. My question is my question is, if we do follow this financial cliff, how does affect agencies and how and how do we move forward in executing our budget and carry nonwith our daily duties . This in the always or recently have because you havent had much predictability of plus five, six years anyway. So to some extent, how is this different . You could say, i mean trust me, i can tell you how is a little different. I really . I mean, you havent had much ability to plan and to make the programmatic decisions that i think are necessary if youre going to be effective as Public Servants or to ensure that the programs are operating are affected. Regardless of whether a particular politician says that your program is good or bad for effective or not, regardless of that for a second time after the decision that is made that is funded come you want to try and work to make sure his successful. You cant do that if you dont know where resources are going to be or what tomorrows going to bring. And thats why i set up, and bernanke didnt mention this when he talked about the fiscal cliff. But i look at the lack of ability to plan, i. E. Cir all the way until march 31st as a pretty difficult way. I mean, its a ridiculous way to run a railroad comic. I mean, were supposed to have the decision as a country done by the end of the fiscal year. The last time appropriations have been done on time, somebody may now, but i want to say 2006 you may have one man was successful. But even then, someone could say, its been a long time since the process actually works the way its supposed to. And its funny not funny, but i did paul ryan actually asked me to come back to my committee. By the way, i told my son who is now 21 years old and didnt know what i was turning congress because he was too young. I taught him, i i used to be paul ryan. [laughter] it gives me a lot of credibility with my son because he has no idea what it was doing when i was out here. But he invited me back to talk about the budget process. Is it broken . Which we do to fix the budget process . I said try this. Try using it once. Seriously, try using it once. Before you say its broken, try seeing if its actually broken. You havent used it. I dont mean this in a partisan way, they havent followed the process and house or senate to pass a budget, to give instructions to committees to get appropriations done on time, hold the hearings, do the work, have the markets come to pass on the floors, to have the Conference Committee were to get them to the president just to get them signed before the end of the fiscal year. So you have at least one years predictability. Ive been part of the problem, so much as trying to blame. Sure, ive been part of it on both sides of the pennsylvania avenue. So id know how it happened. But i suggest you have to use the process and use it correctly, and the lack of using it as an excuse. Maybe they are hiding under the desk, but regardless, i think at this point in time, if youre in the management, youve got to be planning, search for alternatives, coming up with contingencies on what to do based on certain scenarios. I think anyone who is assuming that sequestering is not going to happen, i think, is making is potentially making a bad assumption. Even if they are not, if you look for the reductions, may be some of the places you should look in any kind of deal that comes together that affects Discretionary Spending in particular so regardless of that, i think omb should be looking for ways to affect either under sequestration or across the board, some reduction in different functional categories, the kinds of intending the congress and president may agree upon, and to be able to give recommendations to those policymakers based on that so thats what i would be i think, thats just a gut reaction. I have not thought about what to do, and i really dont second guess that because its one of the hardest jobs in washington to be in that position, not omb necessarily, director, but to be in that scenario, and i think they do a darn good job of giving the tools at their disposal. A question over here. Hes coming with the microphone. I know youre im harold with alliance solutions. I know youre looking at the executive branch, but from the legislative side of things, what about multiyear budgets 1234 budgets . Great question. My, you know, its interesting, i was a believer up until recently that and i was fairly firm on this, that if we cant even get one year right, i mean, good luck, because, you know, a one year broken process then turns into a twoyear broken process, and you wouldnt know about it for two years. That part, the concern i have about just changing the amount of years may not be enough to affect what weve been talking about today assuming you agree that those are some of the challenges. I wouldnt i was dismissive about a multiyear approach to budgeting when i was in the congress than i have been lately. I will admit. I think i would be much more open to that as a consideration now if i saw other parts of it falling together, but i think too many people in the congress who proposed that were using it almost like a slogan. Multiyear budgeting, that will solve it. Okay, what about underneath it. [inaudible] sorry . [inaudible] some of them being two year versus which is an approach. Theres some now, as you know, with multiyear appropriations. Thats a long answer of saying i would not be dismissive. I dont think its the only thing to be part of a reform package if you consider it, but i think its a worthy policy that ought to be considered as part of it. Good morning. Im louis from bna. I was wondering if you could a little more specific about some of the things the tools omb has to deal with sequestration and what happens after january 2nd . I probably cant be. For two reasons, i have not studied it when you leave a job like that, you leave. You go hide for awhile and reconnect with your life, your family, and everybody else, and you forget about i mean, they were the longest days and shortest years of my life at omb. I loved it, but its hard work. I havent studied the apportionment speedometer to the detail that i think apportionment responsibility to the detail that i think youre asking. Its a very important question. As i stated, i dont think its the portrayed because of the responsibility of omb, and having said that, whats in, whats out, how do they do it, this, that, Everything Else srb some of that is, frankly, outside either my recollection or my field of study at this moment, and as a result, im probably not able to give you that kind of detail, but its exactly the right question if you want to if you want to say how steep is this cliff . Is it for of a hill . How much time do we have . When will agencies start seeing the specife sequestration, not the rhetorical effects . When will this affect contractual responses . All of those things are the exactly right question, and i do not have a precise answer for you. Im sorry. You can tell im not in politics i mean. You can say i dont know. I dont know. [laughter] can you tell me what you think the impact of federal employees will be with all of this, reduction in force, furloughs . Same thing. I have not done the analysis. Its a very fair and appropriate question, especially for, you know, at a time when our economy is challenged the way it is, and many people are looking for jobs. Thats why, i think, this is such an irresponsible time for our leaders on both sides to not have a decision, an agreement, a plan to go forward because this is not just about numbers on a page. 62 of gdp, 1. 1 trillion of deficits. Okay, all of that is very interesting, but do i have a job . You know, does my son get to go to College Next Year . Does my husband have to go find another job . I mean, all of those are the kinds of things that really is what this is about. The numbers are interesting, and i think some of us, and i fault myself, very good as throwing around the numbers, but this affects real peopling and it affects them, or, you know, around their Kitchen Table in a very profound way that i think often gets missed when we talk about and ive done it. Ive railed on, oh, the bureaucrats in washington. Ive done that. Then i became one. Plaintiff [laughter] then i worked with them shoulder to shoulder and discovered just like, believe it or not, just like politicians, there are a few bad ones, but most are very good at what they do. They care enormously about the job that they go to work to to try to accomplish every day. They are very professional about it, and they are very worried about the future of their own program, let alone the concern about their jobs or their coworkers jobs and what that may mean so thats, i guess, how i look at it, and i think thats part of the reason why people are very disstressed about this fiscal cliff and lack of decision, lack of certainty, the lack of planning and prepredictability that seems to surround washington, d. C. These days, and thats part of the reason why our economy, i think, is in a standstill. Can you guess im jane from open world leadership center. Can you guess or predict if Congress Exempts itself . Are you kidding . Of course it will. [laughter] thank you. No, i guess i shouldnt say of course it will. I assume when you say that you were talking about under the cuts that [inaudible] right. Yeah. I mean, congress has, in the past, as you know, often and congress is a different branch, and so as a result, congress likes to think its different and special and you will see in the past a number of examples where congress has exempted itself not only from the budget constraints, but even laws its passed affecting the workplace for just about everybody else. I dont want to suggest i know because this is a future question its a question about the future; no one knows, but i think its something to keep your eye on as it sounds like you are and be vigilant in calling that out if it occurs. One of the things we learned as kids is you lead by example, or at least you ought to. You ought to lead by example. You ought to be the first person in line for the rewards and for the challenges, and in my estimation, and i hope ive tried to at least, in my career practice what i preach. I dont know that i always have, and you can probably find where i havent, but i tried to do that, and i think there are vast many of them that would agree, but youre right to watch them. Right now, congressional offices would be affected by thats my understanding. Is that more of an action forcing event than maybe the rest of government . It is an interesting question; however and i just happened to hear this in a debate where two congressmen were thrown in the same district, and they were trying to oneup themselves on who gave more money back to the treasury at the end of the year meaning they have a lot of pad in their budgets. I dont think they are necessarily worried about an 8 cut. I mean, most, they look at the particular whether its the office budgets, committee budgetses, budgets, could probably find 10 just like i bet many of us could if were honest about it, places where maybe not 10 , but certainly savings where we could where we could find ways to reduce the save of our overall budget. That doesnt mean whether or not they will exempt themselves. Theyve done that, like i said, in the past. Hi, sarah from department of education. So the last president ial debate i was surprised to hear the president say theres not going to be sequestration. Do you think that increases the likelihood of [inaudible] likely a punt happens or because revealed an end game, all bets are off, you can find a compromise. I dont think it was that calculated. I really dont. Look, im not suggesting youre asking me this, but i dont want anyone assuming im spinning this. Im sure you can guess who i might be for so i dont think youre probably going to be surprised at any answer i would give, but what i tried to say to start with is i think he misstated or i think the intent of that statement was not what is being reported, that it was somehow a signaling of a different course of action than what he has said heretofor which is he will veto a cankicking kind of bill that just waives sequestration or waives it for defense over Everything Else. He wants this to be an action force, and if he doesnt like the policy, but he didnt view it as a policy. He viewed it as a the way i think many in congress did, an actionforcing event that forces congress to come up with a better deal, if you will, or a better way of approaching this, and so i when i heard him say that, i, too, was surprised, but i think based on his spokesperson coming out afterwards and others that have said things afterwards, i dont think it was a calculated signal that somehow he was going to do that. Its a fair question, but i dont think thats what it was, but ill let others interpret that either politically or fiscally for themselves. Im diane from the Government Printing office. I have a question about the bush tax cuts on Capital Gains distributions. Its currently at 15 set to expire and go back to the 35 . I believe its 35 . We dont see wall street complaining that much. We dont hear too much about it. Whats your feeling . Will it return to the higher percentage, or what do you think theyre going to do way that . Yeah. Its a fair question. I dont know. When you say wall street has not complained about it, i dont think thats necessarily true, and what i meancy that is that wall street rarely speaks with one voice. I think thats true with many entities so called so i think, number one, thats the case. I think theres been more of a concern how we treat investment dollars period towards job creation and capital treatment for investments to try and get the close to well, its actually over a trillion dollars thats on the sidelines of our money, and that, you know, has not been put into the market yet, either on the parts of companies or on the parts of individuals, so i think thats probably the reason why you have not heard this necessarily as a complaint. I think there is a lot of concern about what happens with that, but i wouldnt take the silence you hear or silence you may hear . I dont know lack of attention to it on the part of wall street as a signal that somehow they think its going to happen or that its okay if it happens. I wanted to followup on something you said earlier about the potential sequester, and that there might well be savings that could be found. Isnt one of the problems with the sequester, though, that it takes away managers capability of saying this is a logical place to cut instead of cutting everything across the board . Well, its not across the board. That is one its im not suggesting se quester is the best, and it was put in as i think when the policy was put into place, there was a recognition that entitlements could not be put under the same kind of or most of the entitlement programs could not be put under the same kind of rubric, and thats why many were exempt, not all, but many were exempted from this, and it was a better solution than doing nothing, at least from the political side of the equation. It still gives some through the apportionment responsibility of omb, hopefully, working with government managers, to, you know, determine exactly how these cuts would take how and when and where these cuts may take place that do give some leeway, and i understand that no one in this room will necessarily agree with that, but its at least better than the at alternative which is nothing, or better than the alternative of the across the board cutting it. Theres no leeway there. Thats an arbitrary way of looking at it. This is less arbitrary, although its not perfect. I hope i explained that in a way so i can at least leave the room without being assaulted. Well provide security on your exit. More questions . Im curious how you think the public can be more engaged in the debate or is it too abstract that, you know, the public cant be engaged with, like, immigration or health care, and what do you think the speedometers are for the next responsibility for the next president , obama or romney, to get the public to understand whats going on . Well, i would start with always easy to say, but trillions as soon as you start a sentence with a trillion dollars, you lost everybody. Ive worked in budgets and federal governments on both, you know, you ought to think i dont know what a trillion dollars is. I can tell you how many zeros, 12 zeros, i can tell you that, but whats my relationship to a trillion dollars . 1. 1 trillion worth of deaf study. Whats that mean . Its easier to remove some of the zeros to explain this. I dont mean dumbing it down, but frankly, unless youre warren buffet or the dont donald or the donald, saying a trillion dollars has no connection. Explaning our situation in a way that is less complicated and more downtoearth towards the decisions people make every day would be a help. When i give speeches now, i talk about karen and jims family budget. Thats my wife, karen, shes given me permission to use her name in the scenario, and i tell the story about a couple, and the numbers i use, i take seven zeros off, and i explain the situation more along the lines of, for instance, we have, between the two of us, an income of 240,000 a year. Unfortunately, we spend 356,000 a year. As soon as you say that, and now, i realize, you use those big numbers . Try going down one more zero, and maybe i could understand it better. Regardless of the number of zeros you take off, if you understand the credit card you put in my situation, a hundred thousand dollars on your credit card or take another zero off, 10,000 on your credit card with no likelihood or income source to pay for that, and that it adds up every single year, now all of the sudden people say, really . Thats what that gives you the ability to say when a politician says, well, over ten years, i have a plan that reduces the deficit by a trillion dollars. Whats that mean . That means in the same scenario i used, hes still going to borrow 10,000, but hes just going to reduce that by a thousand. Thats all that means. Thats the best you can do . All the sudden, numbers have a little bit more relationship to people, i think, and thats the best i could come up with. Thats why im sitting here talking to you opposed to running for president probably. The second thing as far as that goes is the public is more engaged now than they ever have been. People are worried. They are not understanding what they should be worried about, but they know the numbers are huge, the solutions are nonexist end. They know politicians are not working hard enough to come up with the solution, and theres a lack of leadership on both sides to get us to that final point, and thats frustrating them. They are looking for answers. I hope that the election bears one way or the other, and i think so, as a result, we can all hope that in the very near future, hopefully, in the next quarter, at the very least, they come together, and they come up with a bipartisan solution that gets us back on track towards some near term definition of fiscal responsibility so we dont have to put as much money on the credit card and the banker or china knocking on our door saying either were done or its time to pay up. More questions . [inaudible] will we know when or on how much the 8. 2 will be applied . On our six month amount . Do we know that yet . We dont. Omb has to tell us that . I would assume so, yeah, but i dont know. Thats why i was trying to answer its an excellent question. I just dont know. I dont know how they are going to do it, and more importantly, i dont know how they i think more important than either one of those, how are they going to communicate it and when i think is another part of that. You mentioned this possibility that the full effects would not be felt even of a sequester right on january 1st, that actions could be taken further down the road. The further it goes into the fiscal year, though, the harder it gets; right . True, no question. I mean how bad a situation could that be . Were already into the fiscal year. I mean, but this and i dont think anyone should be surprised. You sound surprise we might delay, you know, the decision or there might be more uncertainty. Dont be surprised because, and i dont mean to make fun, but i think thats were living under that. Weve been living under that, and the fact that the certainty may grow is a challenge because and thats why i brought up the marketplace. The market does not like certainty, uncertainty. It really thrives on certainty, and when theres uncertainty, when theres lack of clarity in the marketplace, bad things can happen, and people can make decisions in a very defensive way that can be challenging so i think the xfactor to all of this, and i realize were worried about what am i going to do . Whats my budget as you all do as managers. I dont take that away. I take it from a macro standpoint. Whats that do to the economy and the country . If theres a collapse in the marketplace, that makes this ten times harder and more difficult the way it did in 2008 going into 2009. If we face something similar or worse or at least, you know, on the same par, i think that is that makes the xfactor here makes this exponentially more challenging, and then youll really see challenges that at least up until this point in time have not exposed themselves im christina from iowa. From where . Bettendorf. That was my district. It was. I was, unfortunately, too young to vote for you at the time. [laughter] yeah. [laughter] when i came in, i was thee youngest member of congress. I just want that on the record, okay . [laughter] i may be an old fart now, but at one time, i was young like you, you know . [laughter] im just curious if theres been specific talk or planning around if the sequester were to happen, its going to have a disportioned effect on the dc area begin the federal government here and number of contractors. Im a contractor so it affects us as well. Any thoughts what that might do especially given housing prices in the area have been sustained somewhat and protected from the bubble. What will that do to the dc area . Have you heard anything or offer any sort of, you know, speculation on what the effect would be . I think like you. You know, i think youre thinking of all the right categories of concern, and im not sure i could be any better at speculating about those things than you could, but theres no question whenever theres an event that affects that many people, in any community, where a major employer, either that much uncertainty, im not suggesting whether theres layoffs or whether theres anything like that, certainly that has a ripple effect, so, yes. Has there been discussion about it . Again, i got to tell you that, again, most everybody, and this is why i started where i did. I would say a month ago, and even two months ago, there was this almost, you know, the old saying about whistling past the graveyard believing well, all of this is good. Wait for the lame duck. Have you ever seen a lame duck . This is just going to be fantastic. Everything comes together, the clouds part, and all of the sudden, they come up with all the Great Solutions to solve all the things from entitlements to debt to, you know bs. Youve never seen weve never seen a Lame Duck Congress that was very effective at anything, and theres lots of reasons for it that many of you know, but most people watching dont starting with the fact that the first thing they do when they come back is elect leaders for the next congress. Thats what they are focused on, and if theres any change in party majorities, you got all sorts of people running to become chairman of committee and to get their committee assignments, and then the new freshmen come to town, and they have to be oriented and have a lot to learn before they make Big Decisions starting january 3rd with the new congress. You have people thrown out of the offices, the walking wounded as they said. Folks retiring or just got beat are thrown out of the offices right after thanksgiving on about december 1st. They no longer have staff, no rooms, have a cell phone and a laptop or ipad, and thats it. All of these things are happening that are kind of undergirding everything that is, you know, the policy of the substantive challenges. Thats why, thats in part why and then throw on top of that everybodys upset over what everyone else said in the election. You said, they said, he said, she said whatever. Theres a lot of hurt feelings. You throw that into a tend every box and say, yeah, tender box and say, yeah, go ahead and be productive. When people say the lame duck is when it happens, good luck. Its not going to happen. You may have a freeze position where some suggested today you kick the can for three months and say hold fast three months. Lets give the new president or the new congress a chance to look at this, but thats the best, i think, you might be able to foresee, but thats very disruptive as you point out to the certainty of many peoples lives, budgets, careers, and professions throughout this community both in government, and as you point out, as contractors are in the private sector. Okay. Sorry to the cspan audience for using the b and the s in the same sentence. It is cable, i suppose, but its an iowa term, as you know. [laughter] are there more questions . Seeing none, im going to exercise the moderators privilege to wrap us up, too. I dont get a closing argument, tom . [laughter] as in the president ial debates, you can do whatever you want with your time. [laughter] you characterized yourself earlier as an optimist so im just going to insist. Give us the optimistic sequestration their e owe about how this could scenario that could unfold thats not absolutely terrible for everyone concerned. Well, the optimistic scenario, and its not completely farfetched, im just even as an optimist, im realistic enough to know i dont see this based on previous experience, but the optimist scenario is that the president , you know, after the election take the scenario under president obama being reelected, and the next day a phone call is made between he and the leaders in congress, and they say lets put everything back on the table the way it was in the grand bargain, and lets try to get this wrapped up so that we can all start fresh in the first part of the year. I am going to hold fast to my Health Care Concerns on obamacare and on taxes. Im sure youre going to hold firm on defense and taxes, and lets sit down and cobble this together. Its going to be hard, but, and lets put a framework with that including a time line to get the other entitlements, tax reform on the table. Give instructions to committees to get that done. Lets put a down payment right away to alleviate the effects of sequestration, and lets put a plan together. Thats i think thats the optimistic scenario under obama. If romney is elected, i think the it shifts. I think in fairness to the new president , and probably realistically. Everyone will say either, okay, its his problem or thank good rnses its his goodness its his problem, hell deal with it, and this will be a january 20th more of a scenario where some of the work is done by the transition behind the scenes starting to cobble together some of the potential solutions and answers, and that its the first thing tackled by the congress after thetic august ration of ic nothing innothing ration of the president. They would probably look similar in the way they approach it, i guess, in final analysis. I opponents are bipartisan, you know, everyone has skin in the game giving up a little bit, and they do it quickly, and its real. Its not something that, you know, well, this is a budget that takes effect a year from now. Its something that works starts working, and theres a down payment immediately real in bending the curve of the debt to gdp rash ratio over the next ten years. That was a quick off the cuff. Once that comes together, were fine. Another dirty secret and why i was interested in omb is i used to be a firemen so when everyone runs out, im trained to run towards the burning building. Thats why all of this is intriguing to me. I i enjoy the challenge, and its clear that, i mean, none of you would have gotten up at the time you had to get up to get down here to talk about this and listen to this unless you cared about it, and as i said when i started, i really respect the job you do, and its a tough one. Its not often given much credit, and thats not why youre in it. I realize, but for the those of you who work for our country, just thank you, and keep up the good work under very difficult and challenging circumstances. Great, and thank you, jim, for being with us today, and thanks to all of you. [applause] security advisers debate the candidates policies on china. This was hosted by the John Hopkins School of International Studies and the committee of 100, an organization of chineseamerican business, government, and academic leaders. This is just over two hours. [applause] thank you, everyone. Its such a delight to see an over crowding room and we have overflow areas that we had to open at the last minute, and i think were approaching fire code violation, but more impressive than this exciting turnout is the diversity of the representation today. From think tanks, academia, ngos, to the policy community, and the diplomatic core, not to mention theres more than 40 media organizations here tonight to cover this event. In addition to this dynamic, onsite audience here tonight, we are joined by viewers from arld the world. You can see all the monitors that there is a live stream broadcast as well as cspan live coverage, and i want to note that amongst these watching remotely, there will be several simultaneous viewing parties that are organized around the country. There will be at Columbia University in new york, at the university of california at berkeley as well as Yale University in new haven. I am very excited to and anticipate this exchange with the audience during the q a session. The company 100 is proud to partier with the China Study Program here to host the debate this evening, and i also want to note that todays discussion is the only china focused debate in which both campaigns have agreed to go on record. Were uniquely privileged to con convenience the debate to discuss a topic thats quite critical and the u. S. China relationship is definitely most strategic bilateral relationship. Tonights program will include 90 minutes of unintrumpted uninterpreted of key u. S. China relations, and then we conclude with a question and answer period that would be questions collected from all of you, and as well as audience from around the world, twitter, email, and live stream. The format we have this evening is based on the guidelines published by the commission on president ial debates, and there are two sections of questions. Professor, one of the comoderators, will address the first with six questions, and the other comoderator direct the questions in the second section with six questions. Speakers each have a minute and a half to respond followed by a 30second rebuttal, and in keeping with proper debate decorum, i want to review a number of rules of engagement. First of all, please take the time now to take out your mobile phones and anything that makes noise and switch to the silent mode. What you can do secondly now and throughout tonights program, you can tweet, you can email quietly with questions, with comments about the debate, and the twitter hash tag is chinadebate2012 and committee 100 email address is research committee100. Org. We ask the audience respects the debate format refraining from applause, verbal interjections and forms of expressions that could potentially interrupt tonights program. Thank you. Now, please join me in welcoming our veteran moderators, mr. Benjamin wu, and his comoderator is dr. David michael lampton, director of the China Program studies here and a very member of the Advisory Counsel dear to us. Give brief remarks please. Thank you, angie, and welcome to everybody. On behalf of the new dean, i welcome you to johns Hopkins School of advanced International Studies. Whether youre here in person, viewing on television, or participating online, we welcome your involvement and glad youre joining us. This is a graduate Level Institution dedicated to producing International Leadership and knowledge for the world. We have campuses in washington, italy, and china, and they are all tuned in as we speak. Sais couldnt be happier to host this with committee 100 which has done so much to bring reason and balance to discussions with, and, about china. We thank the debaters and their respective campaigns for making this evening possible, and without further adieu, let me return the microphone to angie. Thank you, professor lampton. This evening, we are honored to have two highly respected representatives from both campaigns participating in this nationally televised debate, and representing the Obama Campaign is dr. Jeffrey bader, a member of the National Security Advisory Committee of the president obamas reelection campaign, and speaking for the Romney Campaign is dr. Aaron freeberg, cochair of the asian working group. During the debate, members here are invited to write out questions for the speakers on this note card found on your seat. Please hand your note cards to a monitor that are roaming around the room and include your name and afghanistan on affiliation on the note card. They will be collected for the question and answer session, and lastly, reminded that online viewers, email your questions to research committee100. Org or via twitter, hash tag, chinadebate2012, and i want to ask our moderators to take out the formation and start the debate. Thank you very much. We had a flip of the coin, and the first introduction remarks go to jeffrey who hereafter is jeff and professor freedberg is now aaron. Jeff . Thank you very much, mike, and as to angie, ben, and carla. I want to acknowledge my dear old friends, not so old, ambassador roy and locke in the audience here. Thanks to committee 100 and sais for arranging the event. Ive been a part of it for the better part of two decades, a bash chan of the u. S. China relationship and seen by people around the country and people in the United States government. Also, i want to acknowledge my good friend aaron, here, look forward to the discussions today. I was hop nor honored to serve in the Obama Administration from 20092011 in helping to crft a comprehensive and innovative policy towards asia that increased our presence, prestige, and influence in the reason. A large part of the asia policy, the foundation of it, is a construction and multifaceted relationship with china. This opportunity that i had to serve came at a crucial moment in history as chinas rise is causing it to encounter a bump up against countries in the region increasing prosper pi of countries within the region and increasing anxieties and also as chinas having a greater and greater impact on the global economy. Managing this relationship between the u. S. And china, and its ensuring that in the 21st century we become partners rather than enemies, will be the chief challenge arguably in all Foreign Policy in the coming year. Thank you, ai look forward to discussion. Thank you. Aaron . Let my thank the moderators and you, and its an honor to share the stage with ambassador bader, a distinguished diplomat and scholar whom i admire very much. I suspect well agree on many things. Let me suggest four at the outset. The importance of china, asia more broadly. Asia and china seems likely to be the key country in the key region in the world in the 21st century, and as angie suggested, the relationship between the United States and china is likely to be the most important bilateral relationship in the world. Secondly, there is uncertainty regarding chinas trajectory. Is it going to continue to grow rapidly or experience serious setbacks . Will its political system evolve towards greater openness . Will it continue to be ruled as it is today by a oneparty regime . Will it rise peacefully in terms of its external policy or pursue more assertive or potentially aggressive policies in its region . Third, i suspect we would agree, also, on the long term objectives of american policy in asia and towards china. I think what the United States wants is a peaceful and prosperous region made up of nations linked to the by trade and institutions and whose government share a commit to the protection of human rights and political freedom. I think we probably also agree on the broad outlines of u. S. Strategy because i think that strategy has been pursued with variations for 20 years by republican and democratic administrations, since the end of the cold war, and that combines two elements. I think were going to talk about both. On the one hand, engagement, and on the other, what i call balancing, and where i think we may differ is in the mix of those elements, in the specific policies of which they are made up. My own view is that the policy of the Current Administration has been inconsistent, inadequately integrated and ultimately been ineffective. Its too often mistaken process for strategy and rhetoric for action. A policy has to be judged by its results, and the results have not been good. Bilateral relations between the United States and china today are strained. They continue to engage assertively, aggressively, like to its neighbors who are treaty allies to the United States. It continues to be unhelpful on a range of issues of paramount importance to the u. S. Like nuclear proliferation. They continue to engage in an array of economic practices giving unfair advantage to its own companies. As its been doing for over 15 years now, they continue to expand military capabilities in ways that pose an increasing challenge in our ability to preserve our allies and preserve navigation. Our friends and allies are uncertain about the direction of our policy and staying powerment i think worried at first that the Current Administration was overly solicitous. They worry about being drawn into a rivalry between the United States and china, and they wonder, ultimately, if we will have the resources and the resolve to follow through. I think we need a china strategy thats realistic and steady that continues to pursue dialogue and cooperation wherever possible, but which advances our economic interests, upholds and defends what we believe to be universal values, coordinates with our allies, preserves a favorable balance of power in the region and is strong without being unnecessarily antagonistic or provocative. I believe that if hes elected, this is the kind of strategy that governor romney intends to pursue, and i look forward to the opportunity to discuss these issues tonight. Thank you. Thank you very much, and the first question goes to aaron, and it certainly follows nicely after the introduction remarks. About a year ago, the United States rolled out its asia pivot later named the rebalancing policy. What are your candidates views on this policy, and the subsequent adjustments, the strengths, the weaknesses of this policy, and how would you assess chinas response . Well, i think, first on the, whatever we call it, the increased emphasis on the Asia Pacific Region seems to me is prudent, and in some ways overdue so in that sense i think theres general agreement with the direction of the policy. I think there have been criticism of the way in which the policy has been described in the rhetoric used by the administration to talk about it. They talked about a return to asia, a pivot to asia, and now rebalancing. The problem with some of the language, particularly talking about a pivot and return is that it implies somehow that the United States is fickle. That we were gone from the region and somehow now come back, and, of course, that is not the case, but talking about it in that way, i think, leaves open the question of whether, if we pivoted back, we might pivot away. I think the principle criticism of current policy is that its it seems underresourced. Theres been a great deal of talk, and some of that has been positive, although its stirred concern with the allies, but the question Going Forward is whether the United States has the resources to fulfill some of the commitments weve made implicitly or explicitly in the last year and year and a half, and i think everybody in the region is watching. I would include in that beijing. I think theres uncertainty on the part of chinese observers about the not about the intentions of the United States because i think from the chinese perspective the chinese is clear, and that is to contain china and to prevent its rise, but i think there is doubt about the ability of the United States to follow through. Theres many people in china who believe the United States is in decline. Yeah, well come back to that, jeff, your response . The rebalancing or pivot of the United States to the Asia Pacific Region is something that the add administration pursued since day one. It was the view of president obama and top advisers that the u. S. Was overweighted in some places in the world, notably, iraq, and underweights in the most dynamic region in the world, namely the Asia Pacific Region. The decision to rebalance was a result of a strategic decision, and it was also demand drip. I heard over and over from senior officials in the first month or two from partners and allies in the region about the importance of stepping up our involvement in the region, stepping up our influence in the region. I believe, and i think that nip who tests the proposition talking to a specific region verifies this that the reambulancing has been overwhelmingly welcomed throughout the region. If you go through pretty much every capital, that is the answer that you will hear. Its multifaceted with a Security Military dimension which the military focusedded on considerably, and which president obama rolled out on his trip in november 2011 announcing the deployment of rotation of marines into australia, but also has exhibition elements, and transpartnerships, and the opening of a new relationship with burma that Hillary Clinton highlighted on her trip, and the decision to join the east asia summit, something that Previous Administrations had not done, and this is likely to be the premier political insecurity institution in the region in years to come, and president obama decided that we had to in that to help shape it. Okay. Thank you very much. The question, second questions going to jeff. Both candidates have expressed the desire to seek the best possible relationship with china. What means would each of your candidates adopt to accomplish this, and what are the limits they foresee in building such a partnership or positive relationship . What are two areas, specific areas your candidate sees as having the greatest potential for cooperation . Well, weve had four years to demonstrate how were going to conduct a relationship in and hope for a second term. I would say that the key elements of a strategy towards china, our number one, the balance between a strong and positive relationship with china combined with strong and positive relations with arab partners and allies in the region. You cant do one without the other. Secondly, its critical to set priorities to understand whats important in the relationship, what could be potentially disruptive and throw you off the track. For example, declaring china a currency manipulator in office is an example of the kinds of things i regard as upside down priorities that are disruptive. I would say that the third factor is maintaining a strong posture in the region, a strong Forward Deployed military presence, and timely, id say respect. Respect for china, republic for its rise, respect for what china accomplished in 30 years. As chinese leaders, chinese intellectuals, Chinese People tell us they look back on their history, relations with the west over the last century or two, and they have a sense of humiliation and a continuing sense that the United States is never going to accept chinas rise. I think we need to demonstrate that we really, truly respect what china is doing and the rise and that we are not simply seeking to impose an International System upon it without its active participation. Thank you. Aaron . I think the way governor romney described objectives as regards china are twofold. On the one hand, to seek the best possible relationship with china to encourage china, to engage in cooperative efforts, not just with the United States, but others in the region and world that pursue converging interests, to encourage china to move in that direction, but at the same time, maintain a position of sufficient strength to dissuade china from engaging in ways that are counter the United States and disruptive in the long run to the sound functioning of the International System. You asked a question about greatest areas for cooperation and also about limits. It seemings to me that the areas of potential cooperation include the economic relationship where there is cooperation to a degree, but there is, e e involved, and theres a chance to evolved, and theres a chance to talk about it later, through theres economic relationships unbalanced and not serving American Interests like it is of china, but nevertheless, theres enormous gapes to be made this that domain. A second area where we have not achieved everything that we could and should is in dealing with problem of proliferation of weapons of mass destruction, particularly Nuclear Weapons. I think, in the long run, its in the chinas interest, the interest of the United States, and everyone else that Nuclear Weapons in particular are not spread, but thus far for a variety of reasons, it seems china has not always been willing to use all the leverage had has to try to prevent certain countries with whom it has some influence from moving down the road of nuclear capabilities. I would be hopeful thats an area, too, where greater cooperation would be possible. Jeff, would you want to just 30 seconds. Two areas i would hying like. I agree with aaron on nonproliferation. I have a somewhat different assessment about the degree of success weve had. I think weve had fairly important success in working with the chinese on the Iranian Nuclear program and the north Korea Nuclear program. We can go into more detail in questions later, which im sure will be asked, and the second is energy and Climate Change where the u. S. And china have a common interest in stable stable, not terribly high prices of energy as consumers and developing alternative sources of energy and working together. Thank you. So we have to try. Well see what kind of results we get. The third question to aaron. The last two president ial administrations have sought to foster some military to military dialogue and exchange. How does your candidate a value it cooperation to date in this round, and what would they do to increase a dialogue in Strategic Mutual confidence . Do you think Strategic Mutual confidence in the United States and china is an important problem . Well, there were two questions there. One has to do with military to military dialogue and the other has to do with confidence or is sometimes referred, trust or the lack of trust. I think theyre both important. Military to military dialogue is something that weve had been pursued with china on and off at various times. Sometimes we want it more than they wanted and it certainly desirable. It is something i think which has to be regarded as an area in which the two parties take the opportunity to express their views on issues and a candid way to eliminate and illustrate their thinking and reduce possibilities for misunderstandings, mistakes and accidents, rather than opportunities to deceive one or the other or to impress one or the other with capabilities. So i think it has to be subsidies. It has to be focused on important issues, for example, the question of implications that the collapse of north korea might be a subject for dialogue, though its sometimes difficult to talk about that good source for pursuing. On the issue of strategic confidence, is something i think we have to work at, but there are some underlying optimal to building a truly trusting relationship between the United States and china as is presently governed because the present regime in china taking harbors deep suspicions about the intentions of the United States. It believes the United States seeks to contain it, to keep it down. This in spite of what might appear to us to be enormous evidence to the contrary because no other country in the world has done more than the United States to assist china century to the International System in Economic Growth is opening markets to chinese exports and so on. But there is a deep reservoir of mistrust they think on the chinese side. And to be fair, this one also on the american side. Many americans look at the current chinese regime as lacking transparency, secretive, repressive and theyre not inclined to fully trust. Welcome back to this topic. The Obama Administration rescinds military to military dialogue with the chinese in 2010 and have been offered for the most recent in 2008 after president bushs arms sales package to taiwan. The Obama Administration conceded with a package with taiwan in 2010 and yet the chinese agreed to resumption of military to military dialogue. Its very important. I think frankly if the chinese may not appreciate it, its more important for the chinese than the United States and they have not always sensed that. If you are chinese leader, to have a military to military dialogue with magnitude, and most powerful country in the world seems to be in your interest, but the chinese have often acted as if we are the center and they are not. Its not as it should be. As for Strategic Trust cannot be finished on one more point. One of the things to do in the Obama Administration was to set up something called for strategic dialogue, which are senior officials at the state department, Defense Department and uniformed military. This has been an aspiration for the white whale of u. S. China relations for 25 years, trying to get military in the room with civilians, since the military is so compartmentalized in the chinese system. We set up such a dialogue talking about issues of missile defense, outer space, Maritime Security cyberspace. I think this is a very promising avenue. The only other points all makes sense i see the stop sign being held up by me here is that im personally not crazy about Strategic Trust. Its a very, very high bar to achieve. I know that aaron used a different term. There are other terms that are perhaps more realistic. I personally prefer terms like strategic detectability or strategic transparency. These are things we can actually achieve, taken in a world where theres no surprises, whether we have to trust each other. Just very briefly a military to military dialogue, the point to keep in mind is that it cant be an end in itself. It has to produce something worthwhile. I agree jeff has sometimes been the case they have been in a position of chasing after china, china to get them to agree to enter into talks and it doesnt seem to be that desirable posture for us. I agree china has much to gain from this, although also as a result of this position of relative weakness, if we have an insecurity, perhaps enhances tendencies to conceal and not always to be straightforward. Well leave it at that. Jeff. As i implied, one of the reasons its really important is the Chinese Military so isolated. Within the chinese system, the Chinese Military is not subject to the state council. Its not subject to the leadership of the government. It reports to the military commission of the communist party and ultimately to the general secretary of the communist party. We need a Chinese Military that is more worldly, that understands perspectives of the International Community much more than a very silent organization we have right now. Thank you. We mentioned earlier and north korea, the Weapons Program and destabilizing behavior have been problems that the last two administrations, which she both served in have sought to address, hoping to secure chinese cooperation and of course improvement on the peninsula is self. And yet during both administrations weve seen a steady growth in north koreas Nuclear Weapons delivery programs, including test. How does your candidate look at chinese cooperation in this area and what was your candidate do differently in this entire policy area in the next term . In short has china been helpful . I expect a different assessment of that. I think its a mixed picture. What happens under the Obama Administration was in 2009 when north korea tested in some ballistic missile, disguised the satellite bondage and conducted a nuclear test. China was just china condemned it. China worked with us at the u. N. Security council to issue a statement and pass a resolution that resulted in the toughest sanctions that north korea has ever faced. Granted this is always an isolated country, but when substantially further than everything weve had before. They had an out of north korea and tough financial sanctions. That was good. After that, china became nervous about instability in north korea and the possibility that north korea might unravel. And maybe can to stand by north korea and frankly emboldened in many respects. In 2010, tweeter number provocations, thinking of the south korean vessel, the unveiling of the north korean uranium enrichment program. And we pushed back hard, tightening the alliance for south korea, said in an uss to doc over objections not only north korea, conducting a series of exercises for south korea and postponing the south korean takeover forces from 2012 to 2015. The chinese president obama called up the chain is on this at the g20 meeting in toronto he referred to them old named, indulgent of bad behavior. At the end of the year, after the north korean ratification, through the diplomacy, land hard on north korea to halt provocations and come back to the six party talks, which is the course that they seem to be trying to head tories. So its a mixed picture. The chinese seem to be kind of in the middle, not tilting too far one way or the other. I would not graded as a complete success, but i rate it as a noncomplete failure. On the question of whether china has been helpful in north korea, it has been helpful up to a point and i think its attitudes have been actually consistent, or its behavior has been consistent over quite a long period of time. As he said, we wrestled with this problem for many years, certainly back to 2002 and even before. The pattern has been one in which when pressed by us, were persuaded that we might take action that china feared would be damaging to his own interests. Beijing has been willing to implied additional increments the pressure to north korea, sufficient to persuade them to come back and negotiate. But never enough to actually persuade them to enter into an agreement. So it seems to me that china has been locking a lot and trying to balance on the one hand satisfying american demands for help in dealing with this issue. And on the other, not wanting to press hard enough on north korea to risk collapse or to force it actually perhaps into giving up its nuclear programs. I think the chinese regime has no love for north korea. Theres a lot of mistrust between the two. However, it seems that beijing has made a calculation, that is they would prefer to live in a world where north korea didnt have it their weapons, it is prepared to live with north koreas Nuclear Weapons because it has other priorities that embrace more highly and then the ends of the state on its own borders, which continues to be dependent on it and more or less favorably disposed towards a. I think the chinese hope has been to persuade the leadership similar challenge china has followed unless 30 or 40 years to begin some kind of market Economic Reforms while maintaining tight political control and i think theyre somehow. Theres been some hope that the north korean leader, Kim Jong Cohen with consider and so far theres not much evidence to support that. Chesty points. The deputy secretary of state visited beijing in june of 2009 when they were in a cycle of particularly aggressive misbehavior. And we warned them that if north korea kept on its current course, that it is going to result in responses by the United States, japan and north korea, that china would find this comforting. We spelled it out in a little more detailed than that. Some of these things has in fact come to pass. You see lately for south korea, we agree with south korea on extending its missile guidelines and of course the u. S. Deployment to the yellow sea in the u. S. Exercises. So this is a way of reinforcing the point everyone was thinking about when they hear from us, that there can be consequences. The chinese tend to think more North Koreans and thats what weve done. The only other point is in terms of what were doing in the second term, the Obama Administration would not be afraid of juror talks with north korea, the lead in the six party they would have to achieve object to and be preconditioned, which is all another program, or home moratorium in the Nuclear Missile testing programs. Thank you. Aaron. On that point, there are ways in which the United States and other countries could bring Additional Pressure to bear a north korea. Some of them have been attempted in the past come including the first part of the Bush Administration i think they have to be on the table, particularly if we have any chance of having successful negotiations, the lesson of dealing with is korea i think is you dont get anywhere without pressure. You may not get anywhere even with it. But on that list, i would include financial sanctions, tighter financial sanctions. The north korean regime is in many respects a criminal organization that feels its coffers with the results of drug sales, counterfeiting, arms sales and there are ways of interdict in those flows of dollars because it would take a lot of cooperation, particularly from china. Weve gotten that to some degree in the past. We also have in place something called alliteration Security Initiative under which countries could stop and search ships that were thought to be carrying materials related to the proliferation of weapons of mass distraction that has been used in the past and i want to stop the north korean vessels carrying heroin, also used to Nuclear Materials to libya. So it is possible. There are ways in which more pressure could be applied. I think if theres results from negotiations, it has to be as a result of an increase in pressure. Thank you. Erin, china in the south and East China Seas have had periodic incidents in diplomatic skirmishes over complex claims, claims about which washington takes no position as to sovereignty. How does your candidate to find American Interest these disputes and is your candidate concerned that these disputes could rotten American Interests . To the u. S. Led in the evenhanded role when one party to a conflict is sometimes a u. S. Ally to which we have security commitment . I think the current position of the United States government and islamist sustained of her Previous Administrations over all of the romney and mr. Nation is on most of these issues, where there is conflict in claims, the United States government takes no position as to the resolution of the disputes, although we do insist her hope the resolution will be achieved through peaceful means. There are small but important exceptions regarding the principle, that the question of its inclusion in the u. S. Japan treaty, defense treaty. U. S. Interests are deeply engaged by these disputes and potential conflicts. I think they are heating up for a variety of reasons. Nationalism i think plays a huge role in us in particular in china, but not only there, but also energy, but was really writing this is a desire to exploit Energy Reserves that are thought to lie underneath these pieces of rock, which are not themselves of great importance. Whether these disputes could threaten American Interests, the answer is undoubtedly yes. But i would say there are two dangers. There is one possibility that the United States could be tron into a conflict that wouldnt serve our interest in one of the parties was an american ally. On the other hand, there is a danger also of weakening our alliances by you. To be reluctant to stand behind our allies. And while we maintain this position of neutrality about the resolution of sovereignty, adding its very important that we make clear that in the end, our alliances are first and foremost of importance to us. One other thing i was a briefly as there are ways of resolving in dealing with some of these disputes. Not so much to sovereignty price because its hard to divide right down the middle, but the development of resources can certainly be done on a cooperative basis, and mutual contributions by a variety of countries. But so far, the chinese have not seemed interested. They maintain the interest of most of the resources in particular belong to them. Jeff. Secretary clinton made an import statement in the original forum in july of 2010, highlighting u. S. Principles, governing the South China Sea. This was the first time im aware of any senior official speaking out an outline in our policy in that profess a fashion. She laid out the key print the posts come adherence to the sea and all claims, that had to be based on legitimately and these claims. The importance of freedom of commerce, the importance of peaceful resolution of claims and the importance of negotiation of a code of conduct. Appoint a secretary clinton was making was that we need to approach and the principle, rather than taking sides. We do have allies we do have countries who do not wish to see boley. If these principles are followed, that will be the outcome. I think what needs to be done on the u. S. Side in addition to pursuing the study policy in which we dont take sides, but assert these principles very vigorously and forcefully as it would be good if the u. S. Ratified the u. N. Convention on the law of the sea. All for our secretaries of state have proposed that. The Business Community strongly supports it and the u. S. Navy strongly supports it. Governor romneys position on this as best i can tell is obscure. Hes been critical of it and theres not ready for votes among republicans in the u. S. Senate against it. So i think its a clear difference between the candidates. Two last points. The chinese need to clarify the socalled nine lines. As you know, a dotted line china has drawn around the South China Sea, claiming battle it out for water as well. There is ambiguity in that claim. They need to clarify it and they make clear that there is no more nine line. This is completely contrary to international law. The last point is to me that cheney and all of South China Sea and East China Sea issues is an important test of chinas rate. As chinas rate going to be peaceful . Or is it going to be coercive . So china is unnoticed in the way it behaves than this. Would you like to rebut . Could you clarify on the log to see if thats possible. I dont think governor romney has taken any formal position and im not going to make policy here by telling him what he should do. I think there is an underlying drama here and the one that jeff referred to. I believe that the notice first thats really driving this recent cycle of tensions over these waters is the growth of chinese power. China has made these claims for a long time going back to the formation of the peoples republic, but it is beginning to have the capacity to try to enforce them. And i agree, this is a test of how china is going to rise. Thus far, chinas behavior has not been reassuring. It has been chosen to use coercion and to put pressure on countries that have claims that are in dispute with its own. And well see. That is not serve their interests well. Its arresting sight in the part of many countries in the region. Excessively critical of the United States as a bonus pretty because we have an interest among other things in friedman advocation, but also because if we dont, no one of the other countries in the region and not even all of them together will have sufficient strengths to stand up to china. And i think chinas preference bilaterally with each of the various disputants is a reflection of the belief not inaccurate that a superior power in that situation will out eventually to get what it wants. Just two additional points. I think there were mistakes made on both sides by japanese and chinese. I think the rightwing politicians in japan for sick for sick of her meds to do things they didnt want to do it results in a misreading of chinese reactions. It reacted in a clumsy and threat anyway to unleash or tolerate mobs that attacked japanese cars, japanese stores. Not only is it a horrible signal to japanese and other investors, but to the region generally about the character, the chinese nationalism could have in the years to come. The only point ill make us on the question of energy. It is to the degree to which that is striving the players. If you look at Energy Prices in the world now, Natural Gas Prices have been plummeting in recent years because of shell gas technologies. The idea that a Major International oil company is going to find exploitable gas in the South China Sea that can compete with folk are getting out of the ground of pennsylvania or north dakota. Its frankly highly unrealistic. So aaron is right that this is in the minds of the players in the region that they dont want to surrender these claims, but frankly they wont get much out of them. Question 60 just. Cross Taiwan Strait relations are probably better than in many years. The reason being going prostrate cultural and economic relations. You should have upgraded, more advanced jet fighters says to the island has been periodically raised. How does your candidate look at the issue of weapons sales to taiwan general and in the current setting of cooperative Cross Strait Relations . The Obama Administration has put a great deal of emphasis on helping a strong relationship with the leadership in taiwan and the administration. We made clear from one we got into office that we have a four a different kind of philosophy that predecessor had, which you had to frankly suffer with. Some pieces are good in politics, some cases youre lucky. I think we were lucky in having a president who is more committed to a relationship. Weve handled the relationship farewell in giving a sense of confidence to the arms sales of close to 13 trillion is probably the largest amount the registration is ever provided an agreement on visa free admission of taiwan nationals in the agreement on peace given access to the market recently. As to where it goes on your question really revolves around f16s. The Obama Administration and tony levin provided upgraded f16, socalled av Fighter Aircraft to taiwan. This is a decision the Bush Administration had declined to the Bush Administration to confront by request from taiwan for such fighters and in 2008, it deferred. Weve got the bullet on that. We went ahead on it. As for more advanced the next generation, thats a decision that has not been made. It remains open. Our decision was made on the concurrence of, the recommendation of the Defense Department. And we will be guided by the views of joint chiefs of staff and the Defense Department. Erin. As jeff suggests, the Obama Administration has followed through on commitments that were initially made under the Bush Administration, going back to 2001 and thats certainly appropriate. The United States has a solemn commitment under the taiwan relations act to provide assistance to taiwan and administration have done not over the years and will presumably continue to do that until the taiwan issue is resolved. Taiwan obviously faces growing challenges to its ability to defend his cells, given the sustained ongoing buildup of chinas military capabilities directed added. China now has Something Like 1200 shortrange ballistic missiles, which are targeted on taiwan, developed large numbers of new generation aircraft, which are equivalent to or superior to many which taiwan deploys in its builtup continuous. And taiwan will face a growing military challenge. Governor romney specifically supported the sale of the next generation, the f16 cd because that was what the taiwanese has requested. I think one point that is worth mentioning, and a crew with jeff, sometimes youre good and sometimes youre lucky. I think the way in which chinas domestic politics are played out thus far have led to a smoothing relationship the mainland and taipei. But i dont think theres any guarantee that well continue to be the case. Taiwan is a democracy. As many people with different views. In taiwan, i dont think theres many people there who support independence, but theres some who would support policies different than those currently being pursued. And in the long run, china is not going to be able to get what it wants from taiwan simply by deepening economic relations and increasing military pressure or its not going to go together peacefully. So theres some reason to be concerned in the somewhat longer term about how its going to play out. For the time being, certainly the trend has been toward stability. Yes, two points. One is i think that we should appreciate what mine shall and someone have done. Itll take relationship, stabilizer. Weve got enough problems in the World Without having problems in the Taiwan Strait. So this is this after all is the view of most experts the one area where the u. S. And china have the behavior of the two sides have essentially taken out a table for the first field teacher. Future on sales is important that we provide taiwan the means to deter and to dissuade, but the thought that taiwan can compete in an arms race with the prc, with its rapidly growing military budget i think is an illusion, evolution that the United States should not have been frankly people in taiwan do not have either. I agree with that. I dont think anyone who believes the problem please taiwan is going to have the capacity to defend itself on its own from china. It needs to be Strong Enough to resist chinese attacks and make it so a difficult target and ultimately, it is going to have to hope that the peaceful resolution, but also that it can count me in some of the United States, again the position of the u. S. Is you dont understand on how ultimately discretion is resolved, but we do insist to be resolved peacefully. People of taiwan reach whatever decision they make in a way that is not coerced and its going to be the continuing policy. And they become more difficult over time to that situation as chinas power continues to grow and that is something we have to be concerned about and thats one of the reasons i think theres been more discussion a strengthening of the posture in the region. Thank you both. Now my colleague will ask questions in a different domain. Thank you, mr. Lampton. Thank you for moderate the first set of questions of Foreign Policy, defense and security. Gentlemen, were going to begin the questions relating to the economy. Burke went to mix it up a little bit. Im going to ask questions directly to each of you. The response for not living the same. Dr. Freberg, im going to begin with you. Dr. Bader had referenced this issue and one of its responses. Governor romney has stated disaster of the course of the campaign, that he intends to manipulate china, but theres those such as senator marco rubio recently who agree with the governor about china of initiating a trade war that could ultimately hurt american business. Did governor romney share those fears . You have to stand back and see in a wider context. The president said the other night to u. S. Exports to china have increased and thats true, but imports have increased to match if not more. They run high deficits with china. Last year i think the trade deficit was five times the size of our deficit with japan. This is not entirely the result of the free play of market forces. China continues to pursue a range of policies that unfairly advantage chinese and economic and those in the United States, they could export subsidies of various kinds, by imposing barriers on imports from other countries including the United States by appropriating intellectual property and indigenous innovation which extorts technology and those who want to set up facilities in china and theft, including cybertheft. The trade commission estimated the proper protection of intellectual Property Rights in china could result in an increase of as many as 2 million jobs in the 90s states and not an economist. I dont know whether thats a realistic calculations, that the International Trade commission is not a political group. Labeling china a manipulator would not trigger armageddon. It would put china on notice. They begin a process of discussion and ultimately negotiation between the United States and china and if necessary, would be followed by the imposition of countervailing duties on some product by sliding scale. So its not a Big Red Button is going to be pushed. On the question of a trade war, that is a serious concern, but we cant allow ourselves to be paralyzed by it. As governor romney said in the sense we are already in a trade war, but china is pursuing a much more coherent and deliberate strategy at this point than we are. He also made the point that china is at least an indeed certain respects more dependent on the United States and we are on plan. So we need to find ways of exerting leverage, not to impose punishment, but to create an economic relationship will be equally beneficial to both parties. Dr. Bader coming to suggest a january 2013, the romney administration, do you care to elaborate . Erin talked about a number of trade issues and i hope the questions look at those as well. Ill focus on the currency question. Secretary paulson and geithner have both had the opportunity to label china a currency manipulator for the balance of trade was more egregious in the currency was much greater than the present. They chose not to do so. They chose instead to use pressure and diplomacy and collectively they have achieved approximately 30 rise in the value since it began moving a few years ago. The currency manipulation designation is in the toolkit of the secretary of treasury. The threat to use it is important and useful. But the idea of doing it on the first day in office i find frankly astonishing. This is before president romney will have met with any chinese leaders. There will be new theaters, by the way. They will not be in a passive or submissive mood to threats into being backed into corners. The chinese will retaliate. This i can guarantee. The chinese do not take these things quietly. This will prejudice relations from day one. This is not an unknown experiment. In 1980, Ronald Reagan made dress about the relationship with regard to taiwan and he ended up in a twoyear negotiation, producing at the 17th, 1980 to communicate what you do not regard to some of the highlights of history. And kennedy clinton, bill clinton made a mistake in 1992 of committing to an executive data, linking to human rights. It took a couple years to get off or not. This is a huge mistake to make a specific drive that president romney would either have to carry out the consequences are have to back away from consequence to his credibility at home and abroad. The only other point i would make on this as theres been been a deafening silence from other senior republican statesmen who have been involved in this relationship for the last generation on this subject. I am not aware perhaps someone as to whether theyve have endorsements of this by Henry Kissinger or carla helzberg Brent Scowcroft or hank paulson, or the big names, key figures in u. S. China relations in the last generation. And everybody click yes, its true that the value of chinas currency has appreciated over time. However, the Treasury Department in its most recent report said that it continues to be significantly overvalued. It is true that past president s in treasury secretaries have forgotten the opportunity to use the designation. President obama said at one point he didnt want to embarrass chinas leaders. That seems to me not a sufficient reason for initiating policies that serve the interest of americans. But again, i would emphasize the currency issue is part of a much bigger problem that evolves on an array of policies that china is pursuing and has been pursuing over a period of time, to which a systematic response is necessary. And if this is a part of it and this begins a process that leads to the formulation and execution of the strategy that produces better results for the United States, it seems to be eminently sensible to do. You get the final 30 seconds. Number one, i agree chinas currency is still undervalued. We need to keep the pressure to push the value higher. Chinas trade surplus is only 2 of gdp is supposed to 10 five years ago, so thats progress, but is nowhere should be. Secondly, governor romney said the other day if negotiations didnt produce ray, aaron just referred to countervailing duties. In fact, the statute does not provide new authority for the secretary of treasury. Secretary of treasury, not president , does not provide authority to impose new tariffs. He would still have to go to the congress to seek an authority. Dr. Bader from the second question goes to you. And the president ial debate of florida, both president and romney referred to the economic and trade behavior as unfair in fundamental ways. What specifically with the administration do if given another four years to address equity and with others should the president have in a second term they didnt have in the first term . I think erin outlined a lot of problems in chinas systems with the imbalances are facing in the analysis on this would probably be fairly similar. Its not a level Playing Field its not a level Playing Field its not a level Playing Field its not a level Playing Field sectors in certain companies. The state owned enterprises operate with unfair advantage in the chinese system. They get subsidies on land, subsidies on taxes. Bigger laws from state owned banks that they dont necessarily repay and the result is massive overinvestment, and investment driven economy that produces lots of goods at the market economy would not in the chinese have to figure out, so they sell them abroad. Frequently excessively low prices. The chinese have to move away from the investments driven model. In addition, theres problems in apr and transfer of the companies that seek to invest in china. Whats the solution . Theres a number of steps president obama has taken in the second term. Number one, cases and for the World Trade Organization. We brought at least eight cases to the World Trade Organization in four years. Thats as many as president bush brought during his two terms. Number two, and we won most of the cases by the way. In areas like apr, solar energy, automobile exports, a whole range of issues. Number two, trade under u. S. Law, use of antidumping, uses special safeguards. President obama invoked the special safeguard provisions of u. S. Law, which were entitled to raise tariffs on chinese tarek on chinese tires, which explained the u. S. Market. The last two planes are in the second term, there would be more than a fridge because the u. S. Economy is going to be stronger in the second term. I think that is the view of most economists looking at the Economic Situation in the chinese are counting bumps. So that is going to give us some leverage. Dr. Freberg ma howard governor romney forecast and obama second term . Well, i dont know how that would forecast it, but i know what he would say that the last three years, that the administrations response to these problems, which i think jeff and i agree on has been deleted governor romney said in the debate the other night that the administrations response to trade problems that china has been too little too late and its for god and opportunities to use Additional Press on the currency issue. The administration created a trade Enforcement Center earlier this year, but then it didnt fill the position until the spring. Its true that its brought a series of cases to the World Trade Organization. I believe the majority have brought in the last 18 months or so in a number of them have notably been announced in ohio, not a surprise. For it or not, this creates the impression the administration has claimed politics and whatever he thinks politics send a signal to her counterparts in china that were not serious about this. We do this in 18 months or years leading to elections and then who knows what comes next. But just to finish, and can the administration doesnt think you have a coherent strategy for responding to chinas policy and governor romney has outlined the elements of this using multilateral mechanisms of possible to make unilateral measures if necessary, addressing the current issue, addressing the obstacles to access Government Procurement in china, dealing with the enforcement of ip are coming to gain the possibility of some kind of ip sanctions. And in particular, something the Current Administration has not done with great vigor until fairly recently, initiating a trade policy that seeks to expand our trade with other countries by entering into free trade agreements with countries that play by the rules. Opportunity for rebuttal. For the number one the Obama Administration has posed on freetrade agreements on korea, columbia and panama. Number two, but that what weve done in the last four years is sufficient to this massive challenge is something one can debate. But there is no debating that we did a lot in the Previous Administration did not. It think one other element in this that we should think about is how to reinforce chinese reformists. Chinese economists understand what they have to do to reform economies and continued growth. This report by the world bank and a Research Center of china that outlines a program that i think erin and i would agree on that the Chinese State to undertake. I think they would get into discussions of leadership. They know, whether they can do the manner, but we should find ways of reinforcing the determination to take these steps, just as we did when we were negotiating the World Trade Organization agreement. Dr. Friedberg, 30 seconds. You get the next question. And it deals with foreign direct investment. Fbi and the United States as to have potential for creating and expanding american jobs. What role would he see for chinese direct Foreign Investment, especially in the energy and technology tours. This governor romney think to oversee archer restrictive, not restrict if enough are just right . First, i think governor romney holds the view that the United States should welcome foreign direct investment, including from china, especially in sectors that create jobs in the United States. We certainly should be open to investment. Receipt to invest around the world and we welcome investment in the United States. But we do need to recognize that some sectors and some investors are different than others and we have procedures in place and have had for some time, for reviewing proposed Foreign Investments that could pose threats to National Security, Foreign Investment in the United States and governor romney supports the cps process. China, it should be noted poses some special challenges in this area. Its not just the United States. Australia, britain among others have had to do with this. The line between business and stay and or party, went to Chinese Companies is often blurry. China is not an enemy of the United States, but it is seeking monetary systems targeted against the forces of the United States and allies and for that purpose it seeks to acquire technologies that would enable it to improve capabilities of its own weapons systems. So we have a special security problem with china. Moreover, chinese firms and the government are also engaged in extensive violations of intellectual Property Rights, including three cyberespionage. There is cause for concern that some acquisitions for Chinese Companies might seek to undertake in the United States at a National Security and or commercial implications. The House Intelligence Committee released a report last week, an examination of two Chinese Companies that resulted in a recommendation that american firms be discouraged from entering into cooperation with these companies that seek to sell Telecommunications Equipment in the United States because of the belief that there were major National Security threats and also threats to intellectual property. Dr. Bader. I mean, the cps process as erin mentioned is an important way of ensuring that Chinese Investments do not go into areas that would be threatening or damaging to the u. S. National security. The cps is not supposed to consider economic its not supposed to act as a judge of Economic Issues when theres been a number of decisions in the last two years relating, for example, to investment and recently won your u. S. Facility, where it has not approved investments. But i agree that Chinese Investments into the United States is a good thing. Its positive. We should seek it. In the last year, the amount of Chinese Investments in the u. S. Is sent in like six or 7 billion, which is of magnitude more than in the history of u. S. China relations. Chinese companies are beginning to go out and are looking at the u. S. As an opportunity. Some of the notable investments, have been blocked from investments seven years ago, but now purchase minority shares in shale gas in shale oil in the southwest. Vice president biden, when he was in china last year made the strongest statement i can recall seeing by senior american official about the u. S. Welcoming Chinese Investments. It creates jobs so long as the process does its job, its something we should be positive about. Also another thing the Obama Administration has been looking a is giving Greater Energy to negotiations on a bilateral investment treaty. Its been on offer two decades. Perhaps chinese will have more interest in reaching a signed agreement now that they are investment. Just a couple of quick remarks. I agree on the importance of encouraging investment in the United States as well as other countries, theres obviously other large sectors of our economy for Chinese Investment would pose no problems or challenges whatsoever. The biggest investment last year was purchased at the amc movie chain. Some of the movies made. But there are again new problems we face. Its not clear the existing mechanisms will be sufficient to deal with them, including concerns about the supply chain, through which components are introduced and integrated into systems and communication systems. This is a serious concern because the potential enemy of the United States if there were about gain access to supplychain and Defense System and other devices could be used to monitor secure communications , to interfere with the conduct of military actions to disrupt the functioning of our infrastructure. So there are serious new problems that have to be addressed. There is too dangerous always. This dangers of going in either direction, on the one hand being unwelcoming two Chinese Investment in a way thats interpreted as being hostile. And on the other hand not careful enough about investments that could threaten our National Security. 30 seconds. Just briefly, the acquisition of amc that does not threaten National Security, but even in that case is interesting that there are unusual discussions that go on for Chinese Companies. In this case, to ensure that the American Management remains in place for Chinese Propaganda Department would not have control or influence over the films that amc, cinemas would be showing on rwanda. As aaron alluded, Companies Like bt to provide special challenges because of the possibility of the impact on our communication infrastructure, risk of that doors. This is something that needs more study before we can think about opening that speak it. Im going to direct to you. Weve touched on these issues already. I wanted to delve into them a bit more. The 70 of the property in the United States and government estimates of ipo losses exceeding 250 billion per year due to poverty and espionage, both have a subsidy for countries to live up to their trade obligations in order to protect u. S. Competitiveness. How does president depalma see china as an actor in cyberespionage and what future cooperative or unilateral measures we take to address this issue . Well, china is frankly a problematic act during those areas. In high pr, the last numbers i saw something at the order of 80 of all seizures of counterfeit goods by u. S. Customs authorities of chinese origin. This is a problem the administrations have wrestled with. The First Agreement i can recall was around 1995 on the subject. Its been a massive problem frankly with every rising asian country over the last 40 years. Other countries, japan, southeast asia, korea, taiwan have a trusted. Usually an important fact for and it is in their companies becomes furious overseas actors with innovative product of their realm and then they take apr more seriously. China has not yet reached the stage because theyre mostly in the area of Assembly Rather than branding of their products. Similarly on cyberespionage, discredits on multiple levels in my mind the most serious threat is to u. S. Corporate intellectual property. We see massive attacks. You remember the attack on google in two other companies uncovered at the time that google made its announcement. This is a hard issue. Its not a purely bilateral issue. Its a multilateral issue. China and the u. S. Lets say china is not the only country in the world was cyberespionage capabilities. As a number of other countries and we need kind of a multilateral process for dealing with it. I alluded earlier to the special dialog with the Strategic Security dialogue in which we talk about cyberissues with not only top chinese civilians, but military as well so theres great reason to believe the Chinese Military has been involved in this. The Obama Administration had unilateral measures in asia salute to another were just discussed. When the cps has in the u. S. , one of the categories theyre entitled to look at his ip are. Vip our record in the